Stick figures

After trailing for a couple of years, wages in unionized industries are on the rise, potentially complicating the Bank of Canada’s efforts to curb inflation, according to a new report from TD Economics.

Wage growth has been robust this year, running at 5.1%, the report said. While this is down from a pandemic height of around 8%, it’s still more than double the rate between 2011 and 2019, and well ahead of the Bank of Canada’s 2% inflation target.

“Looking ahead, we anticipate wage growth to cool in the coming months as employment slows, unemployment tracks higher, and job vacancies decline,” the report said.

However, it cautions that the trajectory for unionized wages represents a key risk to that outlook.

So far, much of the wage growth has been concentrated in sectors with low levels of unionization, which typically respond more easily to increased slack in the labour market.

What remains to be seen is how recent strike activity and union wage settlements “feed into union sector wages and delay the slowdown in aggregate wages into next year.”

The cost-of-living crisis and historic acceleration in inflation over the past few years has driven workers to demand significant wage gains this year, the report said.

And recent union wage deals represent a source of upside wage pressure “that is likely to have some staying power,” it noted.

“While stickiness on this front is not expected to derail the Bank of Canada’s efforts to eventually get inflation back to target, it will be one source preventing inflation from dropping faster,” it concluded.